UK Election Preview: Conservative majority is our base case – Danske Bank

Analysts at Danske Bank offered a brief preview of the upcoming UK general election on December 12 and are working with a base scenario of an absolute majority for the Prime Minister Boris Johnson's Conservative Party.

Key Quotes:

“Our base case is that the Conservative Party will win an absolute majority, which would mean that PM Boris Johnson can get his Brexit deal through Parliament before Christmas (he will no longer need to rely on DUP votes and the moderate Conservative rebels who voted against him are either expelled or not seeking re-election, so the Conservative MPs will be more loyal to Johnson). Friday 20 December has been mentioned as a potential voting day.”

“If, against our expectation, the opposition (Labour, LibDems, SNP, Plaid Cymru and Greens) secures a majority combined, we expect the parties eventually to call for a second EU referendum with "remain" as one of the options. Opinion polls show that "remain" is slightly ahead, but not by much.”

“We may also end up in the situation with a very hung parliament, which is unable to pass anything. In this scenario, the UK will probably ask the EU for another extension, which we expect the EU to grant despite Brexit fatigue in Brussels. We are probably heading for another snap general election in this scenario.”

“Our base case and consensus have been heavily converging on a Conservative majority. At the time of writing, Sterling is at 0.8445 and we think the embedded Brexit risk premium is essentially zero. However, momentum and euphoria can probably take Sterling even higher, even if only for a limited period of time. We would assume a drop to the tune of 0.5-1.0 percent in EUR/GBP under the base case, thus settling in at the high end of 0.83-0.84 in the days after the election. Under the alternative scenario of a hung parliament, we believe the market would sour and take EUR/GBP towards 0.86-0.88 range.”